The Yellow Brick Crossroads

I have a preferred scenario in the SPDR Gold Shares (GLD), but that does not mean it will play out. I can be wrong, but the good news is that my risk is defined by the Fibonacci numbers and ratios.

I was looking for a possible low to develop around Dec. 19. We are at an important crossroads in this market since then. GLD ended up making a low on Dec. 20, just $0.10 above a key Fibonacci price cluster zone at the 157.54-158.29 area (actual low 158.39). This price cluster developed within the context of a two-step pattern. The cluster zone included a 0.618 retracement of the May 30 low to Oct. 4 high, a 100% projection of the first swing down of the zigzag pattern (Oct. 4 high to the Nov. 2 low projected from the Nov. 23 high) along with a 1.618 extension of the Nov. 2 low to the Nov. 23 high.

Not only did we have the price cluster information, we also had time symmetry at that last low. Notice that the first swing down into the Nov. 2 low lasted 19 trading days, which was equal to the 19 trading day swing into the Dec. 20 low. The price of those swings down was also similar. The first swing was 11.77; the second one was 11.62.

So, we made a low at key time/price parameters on Dec. 20 in GLD. A nice rally followed initially but then faltered. Since then, we have been torn between two clusters. If my preferred scenario is going to play out, I need to see price continue to hold above the Dec. 20 low, and eventually clear the resistance that we are currently up against. The resistance comes in with a wide zone between the 164.38-166.23 area. This can be broken down into two zones, the 164.38-164.63 and 165.57-166.23. If these resistance decisions are removed, odds of a continued rally towards the 178 handle increase nicely, and there is a chance for this scenario to play out fully. A failure to clear this same key resistance gets me to consider the alternate scenario instead. For example, if we see a sell trigger after a failure to clear this resistance, traders can look for a decline with a possible target below at the 156.76 area.

Stay nimble in these markets and be willing to admit when you're wrong. Let's see what GLD does against these key price decisions and trade accordingly.

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